Wayne makes a very good point about keeping an eye on inventory. Below is the breakdown of AXC's inventory as of 12/31/96:
Raw Materials..........$6.1 M
Work in process....... 5.2 M
Finished goods......... 2.8 M
Total Inventory.......$14.1 M
As of 3/31/97 the inventory figure was $16.0 M, or a net increase of $1.9 M. Considering that Ampex is rolling out a DRAM-intensive clip on interface (a 5 GB interface would require about $50,000 worth of DRAM chips assuming current market price of $8-10 per megabyte) to its DCRsi recorders and considering that Ampex is ramping up its marketing efforts to penetrate the corporate database market, this increase in inventory may be just part of the game plan.
This brings up an interesting part of Ampex's manufacturing model. Between 1989 and 1994 Ampex used the services of a manufacturing consulting firm called Oliver Wight to restructure its factories. Oliver Wight is a nationwide firm that counts among its client the likes of Lockheed, Kodakl, Boeing and Unisys. Below is a link to the Ollie Wight website newsletter which provides some ideas of the progress that Ampex made in converting over to a just-in-time manufacturing model between 1989 and 1993.
ollie.com (1993)
ollie.com (1994)
Dramatic Results
The result? It used to take AMPEX an average of more than 120 days to manufacture one of its recorders; today AMPEX produces that same recorder in just 18 days. On-time product delivery has improved from 90% in 1989 to 100% in the first part of 1993. And the company is producing two new generations of digital video and data storage recorders that are widely recognized as being the best in the industry.
Continuous improvement has brought vast changes to the way AMPEX operates. "We were always guessing wrong on what would sell," Leach says. "We would always have the wrong finished good. Today, we don't have finished goods. We don't start until we get a sales order. What makes that possible is the reduced throughput time, and that's what made our on-time delivery improve fairly dramatically."
It is fair to assume that even though Ampex moved its manufacturing facilities in Colorado (1995) and Redwood City (1996), they continue to implement a similar manufacturing model.
Of greater concern to me is the continuing strenght of the US dollar. In 1996, Ampex generated about 36% of net sales from foreign customers. The 13% shortfall in revenues may be linked directly to deferred purchases of DCRsi and DIS recorders, and the DCT product line which seems to be more popular in Europe than in the US. Even though the strenght in the dollar may persist throughout the year and create a potential slack in demand, I remain optimistic that Ampex can make up for this with increased sales to Fortune 100 companies. Realistically, as Hal pointed out repeatedly, this may take a few more quarters to play out. Perhaps we can continue to count on Uncle Sam to bail Ampex out with increased purchases of DCRsi and DIS products, especially since I think the DOD continues to impose export restrictions on some of Ampex's product line. Maybe the DOD should consider lifting those restrictions so Ampex can sell more data recorders to folks like the Russians. If I remember correctly, the Russians have their own version of a transverse recorder using 2" tape (vs 3/4" tape for DCRsi) with typical Russian bulky and power consuming electronics. Sounds like perfect customers for the more advanced recorders.
Also, the Mitsubishi lawsuit may already be starting to pay dividends for Ampex in terms of more VHS/camcorder manufacturers coming to terms. Royalty income amounted to $5.8 M as of 3/31/97, as follows:
Non-recurring.................$3.3 M
Recurring.........................2.5 M
Lastly, it is premature to start making direct comparisons, but an investment in Ampex today at these prices may conceivably be like investing in a company like Thermo Electron (18 publicly traded subsidiaries spun off so far) and Safeguard Scientifics (10 publicly companies IPOd with 20 more incubating) in its earliest stages. Something to consider. |
